The financial markets can be complicated, given the various terms and professions involved. One confusing area is understanding the difference between traders and analysts; you’ll also find that some traders end up as analysts, which can be further confusing. What is the main difference between a trader and an analyst?
A trader studies price and executes trades for a trading firm, bank, or hedge fund and implements trades that align with the analyst’s view. On the other hand, an analyst studies economic conditions, companies, and industries, seeking to understand fundamental data’s impact.
Read on to find out more about the aspects that differentiate traders from analysts. We also take a look at each of their roles individually.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
What Is a Trader?
A trader is someone who speculates on prices with the help of fundamental and technical data. Traders make money by being in the right place at the right time, which means they rely on what the market says and not what they think.
What’s more, traders gather information by analyzing the political and economic data that can affect a specific commodity’s price. These professionals keep their emotions in check during the trade period to get rewarded. A trader can work in different markets like commodities, stock, forex, debt, and derivatives. He/she may choose to specialize in one type of asset class or investment.
Traders can use different strategies to trade. They can use fundamental analysis, which involves examining the financial states to determine a firm’s value or opt for quantitative analysis, understanding the market trends based on statistical analysis.
Execution traders execute other people’s strategies and try to get the best results by trading in different securities over a given time. Traders only require an undergraduate degree in a related field like mathematics or economics to be employed.
One thing to note about traders is that they are judged based on their performance. It’s a profession you can excel in as long as you bring profits to the firm. Compensation can be from a salary, but there’s also a commission involved where a trader earns more depending on his or her earnings for the firm.
That’s the reason why skilled traders make lots of money, but job security isn’t guaranteed as you can be fired based on poor performance. Traders may discuss market news and ideas with other traders, but there is less teamwork than analysts.
Beginner traders face the challenge of determining whether they should be right on the market or make money in a trade. These two concepts can be confusing and can determine one’s success as a trader.
What Is an Analyst?
An analyst seeks to understand the impact of fundamental data while also considering the technical picture to get the right direction. Analysts study economic conditions, companies, and industries. An analyst will gain reputational equity depending on the number of correct calls made.
You only require an undergraduate degree to get a role in equity research. However, to become an analyst, you’ll need years of impressive work performance. You may also need an MBA to qualify as a senior analyst. Analysts are divided into two: technical and fundamental analysts.
Technical analysts try to identify opportunities by evaluating the statistical trends like the volume and movements in a stock’s price. These analysts do not measure a security’s intrinsic value, but they use charts to identify trends and patterns that predict how a stock will perform in the future.
A technical analyst is more concerned about the price action, which determines demand dynamics and stock supply. Technical analysis focuses on volume data and price.
Some of the technical analysts’ signals include trendlines, simple moving averages, momentum indicators, support, and resistance levels.
Fundamental analysts evaluate stocks based on their intrinsic value. These analysts study the industry conditions, economic conditions, individual companies’ management, and financial strength. Fundamental analysts look at the expenses, earnings, liabilities, and assets when evaluating stocks. Their primary source of data is a firm’s financial statements. That includes the cash flow statement, income statement, and balance sheet.
These statements are used to calculate the metrics that depict the company’s growth rates and performance. Fundamental analysts can also use economic factors and industry data to predict future growth. A value will be settled on after comparing different ratios and models.
Analysts are an excellent resource for finding historical data about how an industry or company is performing. They have reports that give a historical view of the company/industry that dates back to five years. Analysts are also responsible for making projections about the company’s earning potential they are analyzing, and they include evidence on why they believe the predictions.
Traders and analysts are two different professions. While a trader can be an analyst, an analyst cannot be a trader. Here are some differentiating factors.
5 Key Differences Between Traders and Analysts
Evaluating Factors
Traders will mostly study the price when looking at an asset or stock. On the other hand, analysts study economic conditions, industries, and companies to understand what effect they may have on a stock or asset. Analysts can give their predictions at any point, while a trader needs to plan his trade, including the best time to enter and exit based on the current circumstances.
When a trader changes his opinion on a trade, it’s referred to as flexibility for capital survival and preservation. However, when an analyst changes his view on the market or a stock, it’s known as a revised forecast because of the changing fundamentals.
Payment
Traders are paid by managing risk. Their main task is to identify money-making opportunities and be positioned in the right place at the right time. Analysts are paid for being right. They take time to analyze data over several years to determine how a particular stock will perform.
Choice of Stock or Asset
Traders have to choose the best asset or stock class when deciding, but an analyst can select any asset class or stock and give his/her views based on previous trends and projections.
Poor Market Calls
When a trader is wrong, he/she moves to the next opportunity with little to no harm to their job. Making a wrong call is considered a fundamental assumption for the trader. Traders are judged by what they do with their losing trades. That means traders gain capital equity depending on how they handle the lost calls. However, an analyst is judged based on his/her performance. That means any low market call will negatively affect his reputation as an analyst.
Analysts, whether fundamental or technical analysts, gain a positive reputation based on the correct calls made.
Possible Advancements
Advancing as a trader depends on business performance. If you continue being profitable to the firm and prove yourself, you may be given your portfolio to manage. However, the actual work doesn’t change much as you’ll still be involved in trading daily.
An analyst who’s made a couple of right calls gets more responsibility. Moreover, he/she receives a higher percentage of profits. Once promoted, analysts tend to work with high-volume clients and earn more, unlike traders.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
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Conclusion
There are plenty of differences between a trader and an analyst. While a trader also needs to be a good analyst, having analytical skills won’t determine your trading success. Analysts are always rational in their approach, while traders can occasionally be irrational. Stock or asset class choice is essential for traders, but analysts can choose any stock and give their views. Understanding these differences will help you determine the right person to deal with when handling the stock market.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
Affiliate Disclosure: We participate in several affiliate programs and may be compensated if you make a purchase using our referral link, at no additional cost to you. You can, however, trust the integrity of our recommendation. Affiliate programs exist even for products that we are not recommending. We only choose to recommend you the products that we actually believe in.
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